Business insolvency changes threaten small businesses

A Government overhaul of insolvency fees has been criticised by industry experts, who warn that it will be small companies that are hit hardest.

Labelled as a “tax on creditors”, the changes to insolvency fees mean that much of an insolvent company’s assets will be absorbed by officials’ fees, leaving those owed money out of pocket.

Among the changes, the introduction of a new £6,000 fee will come into effect in every compulsory liquidation or bankruptcy, even when handled by a private insolvency firm.

The Insolvency Service said that the move will stabilise its income and help bridge the £9 million budget shortfall predicted for 2016/17.

An additional fee of 15 per cent of all realisations will apply to official receiver-run cases, estimated to cost creditors a further £8 million. The Insolvency Service can also choose to handle more cases itself, when previously it had only dealt with basic cases with no assets to be realised.

Insolvency body R3 has criticised the plans, labelling the overhaul as “a very bad deal for the UK’s creditors”.

“The additional £6,000 charge for every case, even on the simplest case where the government does nothing, is essentially a tax on creditors who have already lost money”, said Frank Brumby, R3 eastern branch chairman.

Previously, only insolvent companies with significant assets would be charged, with subsidies given to those with low values.

Around 19,000 companies filed for bankruptcy or compulsory liquidation last year. If you require business insolvency advice, contact Gibson Hewitt today.